Page 65 - Global Political Economy_Understanding The International Economic Order

CHA PTER T HREE
since every individual exists in a world of scarcity and constraints, an
economic actor wishes to make the most efficient use of the limited
resources available to him or her. This rational-choice model applies
only to endeavor and not to outcome. An individual’s failure to
achieve an endor objective due to ignorance or some other cause
does not, at least in the rational-choice model of human behavior,
invalidate the premise that individuals act on the basis of a cost/bene-
fit or means/ends calculus.
In the abstract world of the economist, all individual consumers
are assumed to be alike; that is, homogeneous. All individual produc-
ers are assumedto be alike also. For example, every corporation,
regardless of its nationality or ownership, is believed to make its deci-
sions on the basis of prices, market considerations, and other objec-
tive factors, andtheir primary objective is assumed to be increased
profits. Even though different cultures and historical settings provide
differing constraints and opportunities, individuals everywhere are
still believedto be essentially the same. While Americans, Japanese,
andBrazilians findthemselves in very different circumstances, their
basic wants do not differentiate one from the other. The environment
determines the constraints and opportunities that shape the means
available to individuals to reach their goals. The belief that individu-
als everywhere are rational optimizers provides the foundation for the
neoclassical economist’s certainty that economics is a universal sci-
ence basedon the objective laws of the market and is applicable to
every economy regardless of its level of development or its culture.
The behavior of individual consumers and producers in the rational
pursuit of their objectives is governedby the principle of marginal
utility, or marginality. On the demand side of the economy, according
to marginal-utility analysis, as consumers consume more andmore of
a goodthey experience diminishing utility; that is, while the first ice
cream sundae consumed may be devoured with great pleasure, each
additional sundae provides less pleasure (decreasing utility) and the
demand of the individual for more sundaes decreases. On the supply
side of the ledger, in situations when there are no economies of scale,
as producers expand production of a given good they begin to en-
counter diminishing returns and rising costs per unit. These diminish-
ing returns andrising costs mean that, at some point, the producer
no longer has an incentive to produce more of the commodity. In
effect, a small change in one economic variable results in a small
change in another economic variable. A competitive equilibrium in
which the actor has no further incentive to consume or to produce is

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